Word of mouth marketing is one of the most effective weapons a business has. Why? With the possible exception of opening the door on squealing brakes and blow-up balloons, nothing flattens potential customers quite like hearing from a trusted friend or loved one about the joys of a product or a service. Referral marketing is more than just word-of-mouth chatter; it’s a deliberate strategy to establish trust, grow your customer base, and foster brand allegiance.
In this post, we’ll explain what referral marketing is, how it’s so effective, and how to create and measure a truly successful program. In the end, you’ll know why employing this tactic can help make your business more competitive.
What Is Referral Marketing?
A Simple Definition
Referral marketing is when businesses ask their customers to recommend them online. It’s a way to compensate current customers or partners for referring new customers to you.
Think of services like Dropbox or Uber. Odds are, you’ve seen their referral programs that promise free storage or ride credits when you refer a friend. This is not simply a customer thank-you program; it’s a technique to grow their user base through slow and strategic additions.
Why It Works
The magic of referral marketing is trust. If a product is recommended by a person to his or her personal network, it has greater value than any amount of advertising. The source of the traffic comes from peers so these recommendations are genuine and organic, and ultimately very contextual, and personalized when reaching new customers.
Now add the digital world into the mix, and social media a thing of life, and suddenly the referral reach is now infinite.
How to Take Advantage of a Referral Program
Why Your Business Should Invest in Referral Marketing
Here are the key advantages:
Cheap Client Acquisition
There is often a high price to pay for traditional advertising, and success is not always a sure thing. On the other hand, referral marketing is not resource intensive initially and has relatively high ROI.
92% of people trust recommendations from friends and family above all forms of advertising, according to a Nielsen study. That means your referred customers convert at higher rates, and you’re spending less money on cold prospects.
Higher Customer Loyalty and Retention
Referral programs can do more than help you acquire customers; they can help you engage the ones you have. By offering rewards to customers for referrals, not only do you encourage their own content, but you also cultivate their loyalty to your brand.
Take an example from Airbnb. The fact that their referral program rewarded those that refer with travel credits also helped add credence to their referral program. This also keeps both sides more engaged with the platform.
Enhances Credibility and Trust in Your Brand
Customers are often skeptical as marketing inundates customers. This is where referral marketing comes in to play that uses word of mouth.
When personal references from people they know are shared, your brand is more favorably viewed. With time, that trust will lead to brand recognition and credibility you need to rise above cluttered industries.
How to Develop an Effective Referral Program
It can be overwhelming to implement a referral program, but it doesn’t have to be. Here’s one way you can keep it simple and effective.
Step 1. Set Clear Goals
Define what success looks like right up front, before you ever start. Do you simply want more of those customers in general? Or maybe you’re trying to reach a specific type of person? Having clear goals allows you to structure your referral program to suit your company.
Step 2. Offer the Right Incentives
It’s all about incentives, and it will kill or make your referral program. That reward could be a discount, freebie, or other perk so long as it’s something that really grabs your audience’s attention.
For instance, if you operate a subscription box business, the promise of a free month’s subscription for every successful referral might be a great incentive.
Step 3. Get The Word Out About Your Program
After all, your referral program can only be successful if people know it exists. Integrate it into all customer touchpoints.
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Use email marketing to engage your current customers to spread the word.
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Design a social media campaign with content that people want to share.
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Make sure each visitor to your website is aware of your referral program.
Factors to Consider When Monitoring Your Referral Program
Like any marketing initiative, monitoring your referral program is essential to see if its efforts are paying off.
Metrics to Monitor
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Referral Conversion Rate: The amount of paying customers you get for every qualified referral.
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Customer Retention: Your referral program’s ability to maintain and retain your existing customers in your sales funnel.
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Total ROI: Measure costs (both incentives and software costs) against revenues generated by your program.
Tools for Analysis
Services such as ReferralCandy, Yotpo, or Ambassify become a complete solution to build, run, and track the referral program based on word-of-mouth program using trusted individuals. They make it easy to track referrals, payout rewards, and analyze the success of your program.
The Power of Word of Mouth That Wouldn’t Stop
Referral marketing is a longstanding tool for promotion. It has a low cost, is reliable, and reflects the current focus on meaningful interaction.
In a time when more people want transparency and individual experiences from vendors, referral marketing truly shines when it comes to creating true relationships between brands and consumers.
Any business can capitalize on word-of-mouth marketing for growth by building a customized referral program and tracking its results.
Looking to begin referral marketing? Try our premium tools and techniques right now!
